Managing retail assets seems to be an increasingly complex affair. Every deal now signed is bespoke. Property centre managers when navigating what has become a complex legal landscape cannot take anything for granted. The ability to contract inside the Landlord and Tenant Act or opt out only adding to the complexity in England at a time when landlords are required to be as flexible and accommodating as possible. Some landlords even now provide customised fit-outs for some tenants.
Need to actively manage assets
The halcyon days of the retail investment sector ended with the Great Financial Crisis. In the past investors might have got away with buying and passively holding their retail investments but to believe this approach is still a viable option is naïve. These assets need to be actively worked to generate acceptable returns.
For one thing, landlords need a better understanding of the market in which they operate. They need to do their analysis, find gaps in the market, and react accordingly. As national and international retailers have downsized their portfolios, vacancy rates have risen so it is no longer possible to focus solely in terms of retail use. Larger buildings with multiple occupiers, such as shopping malls, have typically become more mixed use. Retail landlords now need to understand the workings of the leisure, entertainment, and hospitality sectors, if not more.
Retailers are also no longer prepared to accept the liability for and cost of space they do not need. This usually involves landlords needing to carve out space, and then be creative in finding new complementary uses for this vacant space. In standalone units, this is frequently space on upper floors that previously was used as storage and auxiliary space. In some buildings repurposing upper floors can be difficult to do effectively without compromising the retailing sales area of the ground floor unit. Furthermore, total occupancy cost packages in larger assets where service charges are payable, place a greater onus on landlords to tightly manage these costs.
Need to support tenants
Retail property management is now much more hands on. The growing use of turnover-linked rent means greater emphasis on landlords helping tenants to improve their performance. To do this effectively, owners need to understand their tenants, their businesses, and the market in which these occupiers operate. This rebalancing of the burden of responsibilities on to the landlord is the same regardless of the asset being a standalone unit or in a shopping mall although it is easier to control the neighbouring tenant mix and customer experience in malls than on the High Street.
Independents have increasingly replaced multiple retailers. These occupiers have individual needs and do not understand property in the same way as the property professionals employed by bigger retailers. Affordability also dictates the location decisions of independent operators. So landlords often need to work harder to make deals palatable as well as offer additional support to help these businesses become established.
Changing skills set
Retail investment is not for the faint hearted. Void and default risks were rising prior to the pandemic. The skills required by retail property professionals have also changed. Property managers no longer can get away with just retail expertise but require a wider skills set and knowledge base. The more creative or imaginative the mix in their care then the greater the skills they need to support, manage and market their tenants. Hence, in shopping mall management the emphasis is on building the right team of specialist skills.
For small-scale retail landlords, in a market where the ownership of retailing assets has become increasingly fragmented, owners are less likely to have the necessary skills and knowledge. In an investment market where there is “no sitting on hands any longer”, small landlords have become increasingly reliant on the advice of external practitioners to manage their assets. Hopefully these professionals can handle and adapt to the challenges this ever-changing market throws at them.
– Allison M Orr